-- E-CL enjoys a good cash flow generation deriving from long-term power
sale contracts with solid counterparties, which allow it to maintain good
-- We are affirming our 'BBB-' issuer credit rating on Chile-based power
generator E-CL S.A.
-- The stable outlook reflects our expectation that E-CL'S EBITDA will
return to levels between $300 million and $350 million in 2013 and 2014 and
that its total debt EBITDA ratio will remain below 3.5x even if the company
carries out significant new investments.
On Nov. 9, 2012, Standard & Poor's Ratings Services affirmed its 'BBB-' issuer
credit rating on Chile-based power generator E-CL S.A. The outlook remains
E-CL S.A. is the largest power generator in the Chilean Northern
Interconnected System with a market share of around 50% in terms of installed
capacity and is 52.77% indirectly owned by France-based multi-utility GDF Suez
Our ratings on E-CL S.A. reflect the company's "satisfactory" business risk
profile and "intermediate" financial risk profile. E-CL's business risk
profile mainly benefits from its strong market position in Chile's Northern
Interconnected System (SING), with about 50% market share in terms of
installed power generating capacity; its diversified capacity mainly among
coal and natural gas fired units; its large portfolio of power sale contracts
with solid counterparties; a sale pricing mechanism that allows to
pass-through fuel costs to its customers; and its strong ownership. The
ratings also consider the high competitive pressures from other large power
generators, volatile market conditions in the SING due to potential
operational disruptions in a context of high contracted sales and highly
volatile fuel prices that significantly affect E-CL's operating costs, and the
potential significant increase in debt levels if the company decides to carry
out certain material investments like two coal-fired units of 375MW each, that
would cost about $1.6 billion.
We expect E-CL's credit metrics to weaken quite significantly in fiscal 2012
mainly due to a temporary mismatch between cost and sale price of a new power
sale contract with Chilean electric distributor EMEL during the first 9 months
of 2012. In this context, we expect EBITDA margin, debt to EBITDA, and funds
from operations (FFO) to debt to decrease to about 23%, 3x, and about 25%,
respectively, in fiscal 2012 compared with 29%, 1.9x, and 59.5% in 2011.
However, we expect this negative effect to be eliminated as of the fourth
quarter of 2012 due to E-CL's new long term supply contract of liquid natural
gas (LNG), which is adjusted by according to Henry Hub, which is one of the
indexation factors for the new power sale contract with EMEL. In that context,
we expect EBITDA margin to recover to about 26% to 27% and debt to EBITDA to
remain under 3.5x in 2013-2014, even if the company decides to carry out the
abovementioned significant new investments.
GDF Suez (A/Stable/A-1) indirectly owns 52.77% of E-CL. The rest of the
capital stock is mostly in hands of Chilean pension funds and other
We view E-CL's liquidity as adequate (per our criteria). Relevant aspects of
our assessment of the company's liquidity profile include the following:
-- We expect that sources of liquidity (including FFO and cash balances)
over the next two years will exceed uses by at least 1.2x.
-- EC-L does not face relevant debt maturities in the 2013-2014 period.
-- We expect that liquidity sources will continue to exceed uses, even if
EBITDA were to decline by 20%.
-- The company has good access to credit markets.
-- The company currently does not have any financial covenants.
As of Sept. 30, 2012, E-CL had cash holdings of $200 million compared with $67
million in short-term debt. We expect E-CL to maintain cash holdings of at
least $100 million and to continue enjoying a good financial flexibility.
However, the company could decide to develop a large investment plan that
could somewhat hurt its free operating cash flow during the peak investment
period. In that case of significant higher investments, we expect debt to
EBITDA levels to remain below 3.5x, and that E-CL will further strengthen its
liquidity though a higher cash position or committed bank lines, and
potentially reduce dividends.
The stable outlook reflects E-CL's strong market position and our expectation
that after the weakening in fiscal 2012 EBITDA will return to levels between
$300 million and $350 million in 2013 and 2014 and total debt to EBITDA will
remain under 3.5x even if the company decides to carry out significant new
investments. The rating also incorporates cash reserves of at least $100
million and the company's good financial flexibility. The ratings could be
raised if there are more certainties regarding the potential materialization
of significant debt-funded investments for the 2013-2017 period and if
projected consolidated debt to EBITDA is between 2x-2.5x. The ratings could
come under pressure if performance in the company's more efficient units
deteriorates and/or if the company assumes higher-than-projected debt levels
that lead to debt to EBITDA of greater than 3.5x, while presenting
weaker-than-expected liquidity and financial flexibility.
Related Criteria And Research
-- Standard & Poor's Liquidity Descriptors for Global Corporate Issuers,
Sept. 28, 2011
-- Criteria Methodology: Business Risk/Financial Risk Matrix Expanded,
May 27, 2009
-- 2008 Corporate Ratings Criteria, April 15, 2008
Corporate Credit Rating BBB-/Stable/--
Senior Secured BBB-
Senior Unsecured BBB-
Complete ratings information is available to subscribers of RatingsDirect on
the Global Credit Portal at www.globalcreditportal.com. All ratings affected
by this rating action can be found on Standard & Poor's public Web site at
www.standardandpoors.com. Use the Ratings search box located in the left